G20 leaders vow to crack down on tax evasion by multinationals

Companies like Google, Amazon will be taxed where they make their profits

G20 leaders meeting in St. Petersburg, Russia, vowed to put rules in place that would tax multinational companies in the countries where they make their profits in an effort to crack down on tax evasion. (Kevin Lamarque/Reuters)

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It's time to make Google, Apple and other multinational companies pay more taxes. That's the message U.S. President Barack Obama and the other leaders of the world's biggest economies sent to large companies that operate across borders at the G20 summit in Russia ending Friday.

The new rules on taxes would make it harder for companies to hide profits in tax havens and force them to pay tax in the countries where they make their money, not where the tax rate is the lowest.

The G20 leaders, meeting in St. Petersburg this week, also agreed to an unprecedented deal to share information on individual taxpayers, despite earlier resistance by China.

Low tax payments by major global companies such as Google and Amazon have sparked public anger in Europe, which is struggling to emerge from recession.

Information to be shared automatically

In a communique published on Friday, the G20 leaders said they were committed to an action plan to address "base erosion."

The G20 said they will be commissioning recommendations to set up a system so that profits would be taxed "where economic activities deriving the profits are performed and where value is created."

The leaders also said that they expect to begin exchanging information automatically on tax matters among G20 members by the end of 2015.

But it may take more years to get the new tax treaties and laws in place.

Speaking to reporters after the summit, British Prime Minister David Cameron said that the new tax rules stipulate that not only advanced nations will sign on the deal but said it's important that "developing countries have to participate in sharing tax regulation."

OECD chief Angel Gurria said on Friday that it's crucial that internet giants like Google and Facebook are covered by the new rules.

"You've got to get the big guys to make a contribution," Gurria said. Otherwise, he said, "What are the treasurers, the ministers of finance left with? Medium and small-scale enterprises, the middle class to tax?"

New rules to be drafted by OECD

The OECD is designing the new global tax rules and has come under fire from cross-border corporations that say they're being unfairly targeted. But OECD officials say some companies are starting to recognize that their moves to register in low-tax jurisdictions such as Luxembourg or the Cayman Islands are causing public pain.

Gurria, speaking in an interview with The Associated Press, insisted that the tax plan isn't anti-business.

"We don't want to discourage the companies from creating jobs. But we obviously don't want to encourage companies to take away the profits and squirrel them away and not share them with anybody else," he said.

The plan includes ways to close loopholes and allow countries to tax profits held in offshore subsidiaries. The measures would target such practices as deducting the same expense more than once, in more than one country.

The plan also has a special focus on the online economy, where commerce flows across borders constantly and it's harder to tie revenue and profit to a single country.

Earlier this year, an influential committee of British lawmakers issued a scathing report that said Google made highly contrived arrangements serving no purpose other than to avoid paying full taxes.

Google argues that its practices are legal and transparent, and that the overwhelming majority of sales actually occur at the company's European head office in Ireland — where corporate tax rates are much lower than Britain.

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